Hello everyone, trading on bitmex/margin is not as complicated as everyone makes it out to be. Trading offers us infinite freedom in life. With great freedom comes great responsibility. You must pay yourself, you must not become a slave to the market, and you should not have such a serious focus on money, this comes on its own. A skill in trading markets will eventually reward those who are truly focused about improving their edge.
Lets break this Risk Management Strategy down:
*Remember this is just one path out of hundreds*
- For every trade I like to risk 5%-10% of what is in the margin account or exchange. So if you have a 10 BTC portfolio and you want to allocate 10% to margin trading you would deposit 1 Bitcoin into an exchange like bitmex.
- So why doesn’t leverage matter? Leverage is a tool to manage risk. Before every trade you should know when you want to get out of the trade. You should also have a plan for taking profits. You need to ask yourself before every trade “how will this trade make me money?” How many times will the market allow me to sell above (price) before it hits my stop at (price) for me to end up with a profitable R/R(Risk-Reward). Never allow your account to be liquidated. It ends up costing you more money compared to stopping the trade out yourself. High leverage lets you maximize your reward while risking less. The catch is, you are trading a smaller edge setup. Say there is a 52% chance the trade succeeds… if you are right you win your r/r reward. This is how leverage is supposed to be used.
- Not all trades are equal. Your edge is important and is why I recommended keeping a journal. What I use personally is edgewonk. If you are serious about being a profitable trader, take some time to record your trade setups. You can then allocate risk based on your favorite setups. It also has multiple stats like planned r/r win ratio, sharpe ratio, chartbook, for those of you who really want to improve your game.
- Manage your trades not in fiat or BTC, but in Rs. (Stands for Risk)
- A 1R risk on a 1 BTC margin account will be 0.05-0.10 btc depending on your trade setups strike rate.
- So if you check out my tradingview for the week. You can see I had a strong week with a big 5R trade and 3R trade consecutively following it for a total of 8Rs.
- There is no reward without risk. If you want to one day be able to risk 1 btc and survive drawdowns … letting you make 8 BTC rewards from an 8R trade you must start somewhere and plan for it. You don’t just market long 1m contracts and pray the price goes up. It has to be calculated and planned. Everyone always says oh if I just bought bitcoin 3 years ago at $180…. most likely unless you forgot about it. You had no system in place to hold your bitcoin. It is the same process for trading the homerun trades.
***This is a strategy built to scale and diversify yourself across different markets and brokers. Most people lose in trading because they let their emotions get the better of them and never come up with a way to significantly grow their account. You already have exposure in BTC, you want to get to a point where you can just focus on accumulating btc and not worry about having to ever sell it. A money flow from altcoins-margin-cold storage. I trade legacy markets and follow the same margin trading strategies. They accept bitcoin deposits and withdraws so this is just another way for me to reduce my overall risk and accumulate more. Market conditions are always changing, so you should be constantly adapting. If a certain market is cold and doesn’t match your style, then trade the lower edge of your risk or find another market. If you are killing it, maybe break the seal and trade one level higher, make sure to ride your winners and cut losers quick. Managing risk will allow you to survive in this game long enough to where you can spot that perfect trade setup and plan appearing right in front of your eyes, and you have the system to finally take advantage of it to go in hard and make a 5R trade.
*A couple pointers. You should, especially if you are new be targeting trades that will give you at least a 2:1 reward or 2R. This will improve your bankroll quickly and inspire confidence. Remember not all trades will be winners. This is simply the cost of doing business. Use edgewonk to track your favorites and allocate the upper part of your risk range to your highest probability setups.